- The fiduciary duties of nonprofit board members, commonly described as care, loyalty, and obedience, all apply to investment oversight.
- The duty of care means understanding what the reserves are for, setting an appropriate strategy, and monitoring it over time.
- The duty of loyalty means putting the organization’s interests first and managing conflicts of interest.
- The duty of obedience means keeping investments consistent with the mission, governing documents, and donor restrictions.
- Fiduciary responsibility is about making informed, prudent decisions, not guaranteeing investment outcomes.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment, legal, or tax advice. The considerations described here reflect Raffa’s perspective as an investment advisor serving nonprofits and associations, and other advisors may weigh them differently. Raffa Investment Advisers is a registered investment adviser. Each organization’s financial situation is unique. Please consult with a qualified investment professional, and with legal counsel on questions of state law, before making financial decisions.
What Are the Fiduciary Duties of Nonprofit Board Members?
The fiduciary duties of nonprofit board members are the obligations to make informed decisions, put the organization’s interests ahead of their own, and keep the organization faithful to its mission and governing documents. Governance organizations such as BoardSource commonly describe these as three duties:
- Duty of care: making informed, reasonable decisions with the attention a prudent person would bring to the role.
- Duty of loyalty: putting the organization’s interests before personal or professional ones.
- Duty of obedience: following the organization’s mission, governing documents, and donor restrictions, as well as applicable law.
These duties come from state law, so the details vary from state to state, and they apply to board members at both charitable nonprofits and associations. In our view, fulfilling these duties for investments does not require predicting markets or selecting individual investments. It requires sound judgment about what the organization’s money is for, how it should be invested, and whether that approach still fits as the organization’s needs change.
Charitable nonprofits are also generally subject to their state’s version of the Uniform Prudent Management of Institutional Funds Act (UPMIFA) which sets more specific standards for managing and investing charitable funds. This article focuses on the board’s broader fiduciary duties as they relate to investment oversight.
Duty of Care: Understanding the Money and Overseeing the Strategy
For investments, the duty of care includes three core responsibilities: understanding what the reserves are for, establishing an appropriate investment strategy, and monitoring the strategy over time.
Understanding What the Reserves Are For
Understanding what the reserves are for means understanding the purposes they are intended to serve, which generally shapes how they should be segmented and invested. Aligning each reserve’s investment approach with its purpose helps a board fulfill its fiduciary responsibility by giving it a reasoned basis for the risk it accepts, helping keep money needed soon from taking on unnecessary risk while giving money set aside for the future room to grow.
Reserve categories vary by organization. For example, a board might hold two types of long-term reserves: emergency reserves to protect the organization from a sudden drop in revenue or an unexpected cost, and strategic reserves to fund future opportunities. Even though both are held for the long term, the uncertain timing of an emergency typically calls for investing emergency reserves more conservatively than strategic reserves, which are set aside for initiatives that are not yet planned.
Establishing an Appropriate Investment Strategy
A reserve policy can record the categories a board chooses and the purpose of each, while the Investment Policy Statement (IPS) sets the investment strategy and level of risk for each segment. Establishing an appropriate investment strategy means translating those purposes into decisions about asset allocation, diversification, liquidity, and cost. Those decisions generally reflect both the organization’s risk capacity, or how much of a decline it can absorb without changing programs or commitments, and the board’s risk tolerance, or how much of a decline members are willing to accept without abandoning the strategy.
Monitoring the Strategy Over Time
Monitoring the strategy over time means regularly reviewing whether the portfolio is being managed according to the IPS and whether the IPS and reserve policy are still aligned with the organization’s needs. Quarterly performance reports, depending on the advisor, typically show whether the portfolio is within its allocation ranges and how its results compare with the investment benchmarks set in the IPS. The IPS and reserve policy may need to be updated when the organization’s circumstances change, such as after a significant shift in revenue, a major gift, or a planned draw on reserves. Minutes that capture the board’s reasoning during these reviews, not just its decisions, document how the board carried out its oversight and give future board and committee members the context behind the current strategy.
Duty of Loyalty: Putting the Organization's Interests First
For investments, the duty of loyalty means putting the organization’s interests ahead of personal or professional ones, which includes recognizing and managing potential conflicts of interest.
A conflict of interest can arise when a board or committee member has a connection to a bank, investment firm, or fund company the organization uses or is considering. In that case, the member generally discloses the connection and steps back from the related discussion and decision.
Conflicts can also arise on the advisor’s side. Commissions, revenue sharing, and product incentives typically do not appear on an invoice, so asking a prospective advisor how it is paid can help the board understand any potential conflicts. A registered investment advisor’s Form ADV Part 2 brochure also discloses its fees and conflicts of interest.
Duty of Obedience: Staying Consistent With the Mission and Donor Intent
For investments, the duty of obedience means keeping investment decisions consistent with the organization’s mission, governing documents, and donor restrictions.
Governing documents such as the bylaws and the board’s reserve and investment policies generally define who can make investment decisions and within what limits. When circumstances call for something the IPS does not permit, the board typically considers amending the policy through its usual approval process rather than acting outside it.
For organizations that hold donor-restricted gifts, the duty of obedience also means investing and using those funds according to the terms of each gift, including when the money is intended to be used. When the terms of a restriction are unclear or no longer practical, the board generally works with legal counsel before making any change.
Can a Nonprofit Board Delegate Investment Decisions?
A nonprofit board can generally delegate investment decisions to a committee, staff, or a qualified investment professional, while keeping responsibility for oversight. Board members do not need to be investment experts to fulfill their fiduciary responsibility. BoardSource states that “the legal responsibility for supervising investments resides with the board of directors.”
When a board delegates investment decisions, it remains responsible for:
- Selecting an advisor with care, for example through a documented process such as an investment advisor RFP.
- Setting clear expectations in the IPS and the advisory agreement, including whether the advisor makes decisions within the policy or the committee approves each one. Our article on discretionary and non-discretionary investment management explains the trade-offs.
- Overseeing the advisor’s work, typically through quarterly reports and an annual review of performance, costs, and adherence to the IPS.
Download a Sample Investment Advisory Services RFP
Boards have a fiduciary responsibility to select an investment advisor with care, and issuing a request for proposal (RFP) is one common way to do so. Our sample RFPs can help your board create a consistent set of questions to send to each firm, so responses can be compared and evaluated on the same basis. Each template is fully editable to fit your organization’s objectives.
How Is a Nonprofit Board's Fiduciary Duty Judged?
A nonprofit board’s fiduciary duty is generally judged by the process the board followed when it made a decision, not by how the investments performed afterward. No board can know in advance how markets will move, and even a well-designed strategy can go through periods of disappointing performance.
For a board, this means a portfolio that declines in a broad market downturn is generally not, on its own, evidence that the board fell short. A decision made without adequate information, outside the IPS, or with an undisclosed conflict can be questioned even if the investments did well. In simple terms, fiduciary responsibility is about making informed, prudent decisions, not guaranteeing investment outcomes.
"Fiduciary responsibility is about making informed, prudent decisions, not guaranteeing investment outcomes."
How Raffa Can Help
At Raffa Investment Advisers, we serve as a fiduciary investment advisor to nonprofits and associations, most often in an OCIO capacity, managing your investment portfolio in accordance with your Investment Policy Statement while your board retains oversight. We also provide fiduciary and governance support designed to help boards and committees fulfill their fiduciary duties, including investment policy development and review, reserve strategy, reporting against the policy, and education for new and existing board members.
Frequently Asked Questions: Fiduciary Duties of Nonprofit Board Members
What Does It Mean to Be a Fiduciary on a Nonprofit Board?
Being a fiduciary on a nonprofit board means being entrusted to act on the organization’s behalf and in its best interest, rather than in one’s own. Board members at charitable nonprofits and associations alike oversee resources that come from donors, members, and others who support the mission, so their decisions are expected to reflect careful judgment and the organization’s long-term needs. For investments, it means the board remains accountable for how those funds are invested, even when it relies on staff or an advisor to manage them.
Do Nonprofit Board Fiduciary Duties Apply to Every Board Member?
Nonprofit board fiduciary duties generally apply to every member of the board, not only to those who serve on the finance or investment committee. Committee members typically carry out much of the investment oversight work, while the full board remains responsible for the policies and for overseeing how the investment program is carried out.
Is an Investment Advisor a Fiduciary to a Nonprofit?
An investment advisor registered with the SEC or a state is generally a fiduciary to its clients, including nonprofits and associations, which means it is held to acting in the client’s best interest. Not every financial professional is held to that standard, so when a board delegates investment decisions, confirming the advisor’s fiduciary status is part of selecting an investment advisor with care. Working with a fiduciary advisor does not replace the board’s own fiduciary responsibility for oversight.
About the Author
Dennis Gogarty, CFP®
Dennis Gogarty, CFP® is President and Co-Founder of Raffa Investment Advisers, a firm he purpose-built to serve nonprofit organizations and membership associations. For more than 20 years, he has advised nonprofits and associations on fiduciary-focused reserve strategy, investment policy development, asset allocation, and governance best practices. Raffa currently serves nearly 200 nonprofit clients nationwide, as of June 30, 2026.¹ Dennis is a frequent speaker for nonprofit and association audiences and has presented for organizations including the Council on Foundations, AICPA, BoardSource, and the American Society of Association Executives (ASAE).
¹ Client count is as of June 30, 2026, and reflects the number of nonprofit clients for which Raffa provides portfolio management, retirement plan advisory, or ongoing investment consulting services. Client count is based on unaudited internal recordkeeping and custodial data from Charles Schwab & Co., Inc.
Disclosures:
Portions of this article were drafted with the assistance of AI tools and reviewed by Raffa Investment Advisers staff for accuracy and compliance.
Raffa Investment Advisers is a registered investment adviser with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Diversification does not protect against loss in declining markets.